Landlords’ dream run of incremental rental increases appears to have taken a sudden turn, with average rents declining for the first time in three years, according to a Royal Bank of Canada (RBC).
Our most expensive cities – Toronto and Vancouver – appear to have suffered the steepest declines.
For investors, this may be a temporary state of affairs created more by the tough economic conditions across Canada and a spike in the number of new properties suitable to rent coming onto the market.
The Royal Bank of Canada said in its report: “The number of purpose-built units started nearly quadrupled in the past decade, accelerating significantly since 2018 after the introduction of various government incentives.
“That’s added to the supply of available units, providing more choice to lease hunters.”
A recent reduction in our immigration numbers is another influencing factor, according to the RBC.
The fall in the number of overseas students – a favourite tenant segment – is a major factor in dipping rental values, too.
The soft labour market we’re experiencing across Canada has not helped.
It’s especially tough for younger Canadians, whose participation in the rental market would normally bolster rent levels.
Vancouver has just reported a year-on-year dip of 12%, while the asking price for a two-bedroom apartment in Toronto is down 9.4% compared with 12 months ago.
However, our rental market is stronger in the smaller centres.
Monthly rents are up in Saskatoon (+$267), Winnipeg (+$139) and Regina (+$94), the RBC says.
For investors, these results are further evidence that you need to spread your risk when buying properties.
Metro property markets rarely behave the same way at the same time.
Rather than having your portfolio focused on Toronto or Vancouver, it’s wise to limit your exposure to city-specific economic downturns by having properties in some of the towns and smaller cities, too.
As the adage goes, don’t put all your eggs in one basket.